From Inception to Ingestion: The Cost of Creating New Drugs

10/22/2002

From: Misty Woodruff of the Institute for Policy Innovation, 972-874-5139 or misty@ipi.org

DALLAS, Oct. 22 -- Following is a statement from the Institute for Policy Innovation on the cost of creating new drugs:

Everyone agrees that it takes millions of dollars to take a drug through the approval process. The question is -- how many millions?

"The pharmaceutical industry cites studies that suggest it costs more than $800 million to approve a new drug, while other organizations, such as Ralph Nader's Public Citizen, claims the cost is roughly $110 million," says Merrill Matthews, Ph.D., a visiting scholar with the Institute for Policy Innovation and author of a new study "From Inception to Ingestion: The Cost of Creating New Drugs".

But there is a way to resolve the discrepancy.

"By dividing the research and development (R&D) costs by the number of drugs approved in a given year, we get a rough but accurate picture over time of the money it takes to move a drug from inception to ingestion," continues Dr. Matthews.

For example, research-based pharmaceutical companies spent about $26 billion on R&D in 2000, and 27 drugs were approved. Thus, it cost approximately $964 million per drug approved in 2000.

While this approach is not as scientifically rigorous as other methods, it still provides a relatively accurate estimate when considered over time.

The number of new, approved drugs has remained relatively stable over the years. Of course, some new drugs are similar to already existing drugs -- so called, "me too" drugs -- and are intended to capture part of an existing drug's market. That's called competition, and it has helped to keep costs down. And, in fact, those drugs are usually improvements over the exiting ones.

Yet interestingly enough, nothing -- not even lower prices -- seems to placate the critics. If there is only one patented drug for a specific medical condition, critics decry the high price and lack of competition.

If there are several drugs treating the same condition, critics complain that the money is being wasted on researching and marketing "me-too" drugs.

"Drug industry critics constantly complain that pharmaceutical manufacturers overstate the costs of creating a new drug," Matthews said. "But this paper makes it clear that companies are spending roughly $900 million to get one new drug approved."

For copies of Dr. Matthew's report or for further information, visit www.ipi.org or call Misty Woodruff at 972-874-5139. The author is available for interview.